Congress exempts doctors from "red flags" rule

The legislation keeps physicians from having to comply with ID theft regulation, but some aren't sure if the issue is resolved with the FTC.

By Alicia Gallegos — Posted Dec. 20, 2010

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After more than a two-year battle against a federal proposal to place doctors in the same category as creditors such as banks, Congress has voted to exclude physicians from the so-called red flags rule.

The House vote on Dec. 7 approved legislation that would keep most doctors from having to comply with certain identity theft protection measures such as installing monitoring programs. The American Medical Association and other organizations have argued since 2008 that the regulation would become a bureaucratic burden for medical professionals who already are subject to regulations they say ensure the safeguarding of patient information.

Physician organizations said the measure, which was awaiting President Obama's signature at this article's deadline, is a step toward resolving the problem. But they are waiting for the Federal Trade Commission to acknowledge publicly that the agency will comply with the legislation.

Until that happens, a lawsuit filed by the Litigation Center of the American Medical Association and State Medical Societies against the FTC is continuing. The suit will not be dropped until the resolution of a similar lawsuit filed by the American Bar Assn. against the FTC.

"The AMA is pleased that this legislation supports AMA's long-standing argument to the FTC that physicians are not creditors," AMA President Cecil B. Wilson, MD, said in a statement.

"AMA's efforts have made a difference for physicians, with five delays of the red flags rule implementation date already," he added. "We hope that the FTC will now withdraw its assertion that the red flags rule applies to physicians."

The FTC said it is pleased that Congress clarified the rule, which was "clearly overbroad." But the agency has issued no further announcement since the House vote.

FTC Chair Jon Leibowitz told the AMA House of Delegates at its Annual Meeting in June that he agreed the rule was overly broad. But he said the FTC did not have the authority to exempt any categories or professions. Legislative action was needed from Congress to fix the rule, he said.

FTC spokesman Frank Dorman said he did not anticipate that the agency would issue any more statements regarding red flags.

He said particular industries would not be excluded automatically from the rule. Rather, they would be judged on whether their business activities are in line with the definition of "creditor," as defined by Congress.

The bill approved by Congress narrows the term "creditor" to include only entities that use consumer reports, furnish information to consumer reporting agencies or extend credit. "If an organization is considered a creditor under the Equal Credit Opportunity Act and is engaged in any of the activities identified in the legislation, it is still covered by the rule," Dorman said.

Fighting red flags

The red flags rule is the result of the FTC's interpretation of the Fair and Accurate Transactions Act of 2003, which was created to tighten security of financial data held by banks and credit card companies. In November 2008, the FTC said physicians were covered under the rule because they bill people for services after they are provided and because they allow payment plans.

Lawyers were covered under the rule, which prompted a lawsuit by the ABA against the FTC in August 2009. A Washington, D.C., judge ultimately issued an opinion in support of the ABA's argument that attorneys should not be included in the rule. The FTC is appealing the ruling.

In May, the Litigation Center filed a lawsuit to exempt physicians from the red flags rule. The AMA was joined by the American Osteopathic Assn. and the Medical Society of the District of Columbia. About two dozen other medical organizations later lent their support.

In June, the FTC agreed not to enforce the rule until resolution of the ABA suit. On Nov. 30, the Senate voted to clarify the rule so doctors were not included. The House approved the measure days later.

K. Edward Shanbacker, vice president of the D.C. medical society, stressed that doctors want more response from the FTC before they are confident their practices will not be impacted. "We're still waiting for the FTC to issue an unequivocal statement they are not going to enforce this against doctors," he said. "When we have that certain statement from the FTC, we will broadcast it widely and loudly."

Meanwhile, some legal experts believe it's going to take more than Obama's signature and a statement by the FTC to keep medical professionals free from the rule. "I don't think the modification eliminates application of the rule to the health care sector," said Peter McLaughlin, senior counsel with Foley & Lardner LLP in Boston. "There may still be times health care providers are swept up in the rule. ... Unfortunately, there are no black and white lines."

For example, McLaughlin said, if an underinsured patient attempts to negotiate a payment plan for a certain procedure and his or her medical professional conducts a credit check, that physician might fall under the rule.

He said the move by Congress was instrumental in defining what constitutes "creditor." The bill removes most concern from entities that are not financial institutions, while giving the government the authority to scale back its interpretation.

But McLaughlin believes it's up to the FTC either to revise the regulation or include additional interpretative guidelines. The latter, he noted, probably would be the easiest and more timely of the two.

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